It's a little bit terrifying how close Ashley Madison came to an IPO

The details of more than 30 million people who were registered to the site, which is meant to facilitate extramarital affairs, were released after a data breach in July.

That’s obviously terrible, but part of what’s unbelievable when you sift through the wreckage of this disaster is how close the site was to breaking into the mainstream, at least as a major online company.

That’s amazing and scary — not from a moral point of view, but from a business one.

As recently as four months ago, Ashley Madison’s CEO was talking up the prospect of listing the company on a stock exchange — pretty much the pinnacle of mainstream business success.

That now looks like a laughable ambition. Since the leak, huge holes in the business have become apparent. The confidentiality of its (understandably secretive) users has been breached by the hack. But part of the reason some have been compromised is because even the “full delete” option offered by the site seems to have been enough to easily identify users — they were sold a pup.

What’s more — and perhaps even worse from a business perspective — it looks like it was almost entirely men using the service. With 31 million male and 5 million female accounts, the odds were already stacked against men looking to cheat, but research by Annalee Newitz of Gizmodo suggests only 1,492 of those female accounts had ever opened their message inboxes.

Fortress Investments, the New York-based hedge fund with nearly $US54 billion in assets, recently signalled its preliminary intent to loan Ashley Madison’s privately held parent, Avid Life Media — $US50 million over two years, according to persons briefed on the matter. (Biderman and Fortress declined to discuss this.) And last June, a partner from the New York investment bank Jefferies met Biderman for drinks at the Four Seasons Hotel in Manhattan to talk about a possible initial public offering for the Toronto-based company. Just this month, Grupo BTG Pactual SA, Brazil’s largest independent investment bank, called Biderman to ask about taking an equity stake in Ashley Madison and licensing the Ashley Madison brand.

Nearly a third of Avid Life media is owned by the DeZwirek family and their company, Icarus Investment Corp, according to Reuters. The company clearly found it difficult to find investors, but it didn’t find it impossible.

Of course, many investors wouldn’t want to own shares in Ashley Madison for ethical reasons — and they’re more likely to talk about it (it’s free press for Finncap after all).

But markets are largely amoral (if not immoral), and I find it really difficult to imagine that if people saw value in the company, it wouldn’t have found buyers. Perhaps that’s me being cynical, but I think imagining it would have been rejected by a widespread moral consensus is a bit naive.

A study by Harrison Hong and Marcin Kacperczyk in The Journal of Financial Economics called “The Price of Sin” found that “sin” stocks outperformed the wider market by 2.5% a year between 1985 and 2006 (and even better just in the U.S.). That is the kind of margin on which hedge fund fortunes are built. It might just be a statistical anomaly of course. More plausible, it might be because, rightly or wrongly, this is what actually sells. The more of them that London has — and if Ashley Madison doesn’t count as sin it is hard to know what does — then the better the market will perform.

He also, somewhat worryingly, and perhaps rightly, said that “far-flimsier businesses have been floated in London.” That might be the main message here — how quickly things can go down the toilet.

Ashley Madison isn’t being brought down because of its dubious moral worth, but because it had shoddy data security and seems to have had shoddy business practices too. Those things are crucial and they don’t always show up on a balance sheet.

The truth is that if Ashley Madison already had investors and massive revenue growth, it would have found more if it had floated. There will always be someone who refuses to let money go lying at the side of the road, no matter who it comes from.

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